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HS2: NAO report disproves government rhetoric

A longer version of this was published on the Information Daily (formerly eGov monitor) last month.

The main headline from the recent NAO office inquiry into HS1 was that the passenger forecasts, the key fundamental on which the justification for building it were founded, were in fact massively overestimated, with actual passenger numbers a third of the original forecast by the scheme’s original promoters.

It should also be pointed out right now that the DfT have consistently refused to release passenger figures on the West Coast Mainline for anyone wanting to scrutinise their HS2 forecasts.

When the Department of Transport took over HS1, they did revise passenger forecasts down, but the actual numbers are still only two thirds of that. With HS2, the initial passenger forecast estimated an increase in numbers of 267%. This has since been revised down a little, but no more closer than reality than making sure the magic figure of a 1.5 Benefit-Cost Ratio –which is the borderline of the relegation zone of Government projects- is met, on paper at least. Well that was the plan. Whilst the benefit cost ratio before the decision to go ahead stood at 1.6 (meaning £1.60 of benefits for every pound spent) for London to Birmingham, in February it came down to 1.4. Recently the DfT admitted a ‘modelling error’ had been spotted and the BCR is now only 1.2, officially poor value for money.

Unfortunately it is worse than that, as much that makes up the ‘benefits’ of HS2, like HS1 is simply made up, speculative and unquantifiable. As Margaret Hodge MP, chair of the House of Commons public accounts committee, said of the NAO report into HS1: “Yet again we hear that value for money will depend on uncertain benefits which have not been quantified.”. The fact is that the vast majority of the benefits of HS2 are the ‘cash value of time’, in that saving time on a journey will net a cash value to the economy, opposed to the surely more inevitable conclusion that the richest in society who do the long-distance commutes will spend half an hour longer in bed.

The NAO report said that future schemes should be subject to “rigorous scrutiny and scepticism.”, but the lesson has not been learned, because like HS1, the overriding mantra with HS2 is theat it is to be built, no matter what the cost or lack of purpose. The DfT easily picked a scapegoat for the HS1 forecast being so far out- apparently due to the rise of low cost airlines. While this have may or may not have been able to have been forseen, the reason why HS2 will be outdated as soon as it is built it clear. The UK leads the world in terms of the percentage of GDP which relies on the internet economy – 8.3% already. Yet we have the slowest connections amongst our main competitors. If there were any obvious example of not only why HS2 is not needed, but where the same investment should go, it is this.

To show how uninterested they are in looking at things thoroughly, HS2 Ltd set up “challenge panels”, “to provide independent expert scrutiny”. The Transport Select Committee noted that the panels were made up almost entirely of public supporters of high speed rail. Like the challenge panels, Justine Greening has been consistently unwilling to hear doubting voices on HS2. She has consistently refused to meet campaigners against HS2, instead surrounding herself by proponents of high speed rail: her new Parliamentary Private Secretary was publicly supportive long before his appointment, and she has spoken at the event organised by the David Begg, director of the Campaign for High Speed Rail, which was clearly organised before her official announcement to go ahead with the project.

It is not just that the need for scepticism is being ignored, but the need for having any form of rational analysis, like with HS1 has gone completely out of the window. The starting point was ‘we’re doing this’, every supporting argument since has been retrofitted. In the HS2 Ltd world, demand for train travel, which was flat until privitisation will continue rising forever. This is the problem with asking an economist for a prediction, they are incapable of understanding what a curve looks like, and will only plot a straight line. Groups like Stop HS2 have pointed out to the Dft and the previous Secretary of State Philip Hammond that developments in technology – like telepresence videoconferencing – will reduce the demand for long-distance travel, because it has clear benefits to businesses in both time saved and travel costs reduced. The growth in teleconferencing is being led by businesses, and taken up by all government departments, but they take HS2 as a project outside of these real world realities.

On the one hand, the Dft is promoting iniatitives like ‘Anywhere Working’, which is funded by a consortium of businesses. On the other hand, when it comes to HS2, rather then investigate the possible effect of technology on the demand for long-distance travel, when it come to HS2, the Dft and Justine Greening pretend it will have no effect.

The issues of passenger numbers with HS1 would matter less if it were not for effects of HS1 elsewhere on rest of network: many people in Kent have found their services are worse, fares are rising there faster than average, and classic speed trains have been slowed down. Just as they did for HS1, much of the expected benefits from HS2 come from the value of journey time savings, which have not been quantified properly: the idea that a few minutes less on the train will be turned into extra time in the office and somehow benefit the economy, despite the fact people work on trains. Even the existence of this article helps destroy the business case for HS2. The final edit was completed on a train, but fundamental to the HS2 business case is that all time on trains is wasted.

The original benefit-cost ratio for HS1 was calculated at 1.5 to 1- defined as medium value for money on the Dft’s scale. But because the passenger numbers are so much lower than forecast, the NAO’s actual value for money calculation shows that HS1 is in reality not value for money at all, there is no question this will be the same for HS2.

If the Dft has got the passenger forecasts wrong, HS2 is highly likely to be an expensive white elephant, sucking subsidy from the rest of the network, for the benefit of only a few passengers.

Whatever the failings of HS1, the original name – the Channel Tunnel Rail Link – describes it’s purpose clearly. It was something clearly new, which against what we would have wished, has failed to show it’s worth.

There is no similar clear purpose for HS2. At different times, It has been promoted as solving a variety of different problems, ranging from promoting a low carbon economy (despite the opposition of The Green Party), to being a magic wand which will heal the north south divide, despite the fact DfT projections show that three quarters of pathetic total of 30,000 new jobs will go to London.

The new arguments seem based around a need for more capacity on the WCML, but there are other better value options rather than building a new railway, ignoring the longer trains Virgin are now bringing in, following the faster service brought in by Chilterns earlier this year. With HS2, there are no benefits until at least 2026, at a cost of £17 billion, before which 8 years will have been taken rebuilding Euston, as well as making changes to the West Coast Main Line north of Birmingham.

The alternatives to HS2 are incremental improvements: these have the huge advantage that each piece of work brings immediate improvements, and the timing can be altered to suit demand and the economy. HS2 Ltd came up with several packages (the best known is RP2) that could also deliver more capacity and this idea was taken up by the 51M group of councils. The Dft and Network Rail argue against improvements like these – except for when the work is needed to build HS2.

The bottom line is that whilst the NAO have produced several heavily critical reports on HS1 and it’s failure to do what it said on the tin, they will be far busier with HS2 in the future, if they still exist then or unless someone in Government takes the time to analyse the facts about HS2 before it is too late.